Roughly 60 countries are in serious danger of debt distress or default in the next two years, according to the World Bank, International Monetary Fund, and United Nations. Most are developing countries, around half of them in Africa, but should they start defaulting, EU states and banks would take a hefty financial hit.
Some write-offs are now unavoidable.
The disagreement between international leaders is not about whether a new global debt relief scheme is needed but rather how big and ambitious in scope it should be.
The United Nations reckons debt worth $148 billion must be written off by 2029 to avoid a new debt crisis. A Boston University paper published earlier this week reckons that haircuts of up to $500 billion owed by more than 60 countries will be necessary to avoid “cascading defaults”.
However, this discussion has become bound up in geopolitical rivalry, primarily between the United States and China. Senior US officials, joined albeit less vocally by their EU counterparts, have accused China of debt-trap diplomacy, primarily in Africa, and insisted they take major haircuts on their loans.
China retorts that more developing country debts are owed to Western nations and financial institutions and that the big multilateral lenders such as the World Bank and IMF should also share the pain.
Beijing has a point.
African governments owe three times more debt to Western banks, asset managers, and oil traders than to China and are charged double the interest, according to research released by British NGO Debt Justice in July 2022.
This “chicken and egg” situation, as described by UN development programme chief Achim Steiner, now appears close to resolution.
China has made the first big move at the World Bank/IMF spring meetings in Washington this week, signalling that it will drop its longstanding demand for multilateral lenders, including the Bank and Fund, to share losses in sovereign debt restructurings for poor countries.
In return, the Bretton Woods institutions have agreed to ensure that their debt sustainability analyses of countries undergoing debt restructurings will be made available to Chinese authorities much earlier in the process.
Beijing’s central bank governor Yi Gang also said during the World Bank and International Monetary Fund spring meetings that his country is willing to implement a debt disposal framework with other countries.
This is a major concession by Beijing, but it has not been matched by ambition from other wealthy countries or decisive leadership.
The mantra that ‘something must be done’ has not been matched by any agreement this week on the scale of the debt haircuts that will be needed.
That hands over the baton to French President Emmanuel Macron, who has promised to chair an international debt summit, likely to be in June.
Macron has – as we know – had a rough couple of months at home and abroad, but providing the leadership needed to avert an international debt crisis would make a major contribution to his legacy.
However, what has been missing from the early days of the spring meetings is ambition on the debt haircuts that economists and officials in the Bretton Woods institutions, United Nations and elsewhere say are essential to avoiding an existential debt crisis.
The Roundup
Members of the European Parliament closed several critical parts of the AI regulation at a political meeting on Thursday, but the prohibited uses of AI could potentially divide the house.
Ahead of a vote on the EU’s carbon market reform, Green lawmaker Michael Bloss reassured consumers that carbon prices will not go above the €45 limit, citing a political commitment by French president Emmanuel Macron.
The EU’s infectious disease health agency has linked an outbreak of botulism across Europe to a controversial procedure for losing weight practised in Turkey, strongly advised against by medical experts and EU authorities.
The EU justified its decision to step out of a landmark agreement to curb harmful fishing devices in the Indian Ocean citing a lack of scientific assessment, but the explanation was deemed hypocritical by ocean conservation groups.
There are serious concerns about Greece’s democratic credentials, with threats to the rule of law, harassment of officials of independent public bodies, and widespread intimidation of journalists, according to a leaked draft mission report by the European Parliament’s Committee on Civil Liberties, Justice and Home Affairs.
The Swedish presidency of the EU Council wants to discuss how the Media Freedom Act will strengthen the media sector, how it will complement the current regulatory framework, and the remaining hurdles at a ministerial meeting in May.
As always on Friday, make sure to check out the Tech Brief and the Agri Brief for a weekly roundup of indispensable policy news.
Look out for…
- Commission Vice-President Valdis Dombrovskis and Economy Commissioner Paolo Gentiloni participate in 10th Recovery and Resilience Dialogue with European Parliament’s Committees on Budgets and Economic and Monetary Affairs.
- European Parliament plenary session in Strasbourg, Monday-Thursday.
[Edited by Alice Taylor/Zoran Radosavljevic]
Source: euractiv.com
